10 tips to get out of mortgage arrears

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a couple looking worriedWorried about falling behind on your mortgage repayments? Scared that your home could be repossessed? Don't bury your head in the sand.

Our top tips look at how you can work with your lender, and others, to get back on track if you have fallen behind on your mortgage.

Whatever you do, don't risk the roof over your head by doing nothing at all.

Tip 1 – Talk to your lender before you miss a payment
If you are worried that you might struggle to meet your mortgage payments, contact your lender today. Even if you think you will scrape by this month but you are worried about the future, pick up the phone.

It will stand in your favour with the lender and it means that they can work with you early to avoid you falling into serious arrears. According to the Council of Mortgage Lenders, "your lender will be sympathetic and will provide as much assistance as possible".

Tip 2 – Pay whatever you can, even if it isn't enough
It's very important to pay as much to your mortgage lender as possible, even if you can't meet the full payment, because it shows you are trying your best to deal with your financial problems and that you are committed to the mortgage.

A borrower who suddenly stops paying rings alarm bells for a lender, as they are less likely to get back on track than someone that has maintained a monthly payment, albeit a reduced one.

Tip 3 – Make the most of flexible mortgages
If you have a flexible mortgage, or an offset deal, you may be able to underpay or take a payment holiday for a few months – and this could prove a lifetime if you are going through a difficult financial patch.

Flexible mortgages usually let you do this, provided you have already overpaid your mortgage to at least the same amount, but each lender and deal comes with its own terms and conditions, so check the smallprint.

Tip 4 – Can you pay interest-only?
If you can't afford your monthly mortgage commitment and you currently have your mortgage on a capital and interest basis, ask if you can just pay the interest on your mortgage for a set period.

Lenders are very stringent about interest-only borrowing for the full term, but they are often willing to agree to it as a temporary measure to help you through a one-off financial blip.

If your lender agrees to let you only pay the interest on your mortgage for six months it could significantly lower your payments during that time, although your overall mortgage term will increase accordingly.

Tip 5 – Ask about all your options
There are many different repayment plans a lender can agree if you are worried about meeting your current monthly repayments. Which one is right for you depends on your specific financial circumstances. But it is worth asking if they offer the following options, and if not, why not:

  • Reducing your monthly payments by lengthening the term of the loan, for example from 20 to 30 years.
  • Adding any arrears charges you are accruing to the outstanding mortgage rather than seeking immediate payment. This is called capitalising the arrears and gives you breathing space (though by adding the charges to the loan you will pay interest on them)
  • Accepting reduced payments for a short period until you are able to resume full payments and repay any arrears that build up.
  • Changing the way you make your payments, or the date you make them.

Tip 6 – Knowledge is power
All lenders have to adhere to certain rules and regulations regarding borrowers in arrears, and they have policies in place so that each borrower is treated fairly.

They also have to make their policies and procedures clear to you, by providing you with details of how you can expect to be treated. Make sure you ask for this at the outset, so you are fully aware of both your rights and your responsibilities.

Tip 7 - Look at your wider finances
If you are struggling with your mortgage repayments, a thorough look at your wider finances could prove invaluable. Putting together a budget sounds obvious, but not many families actually do this, and it can help you to save hundreds of pounds a month.

It also shows your lender you are serious about sorting out your money worries. If there still isn't enough money after you have budgeted, you need to seek independent debt advice, in addition to speaking to your lender.

Tip 8 – Take independent advice
If your money worries are more serious than one missed mortgage repayment, it's a good idea to get independent financial advice from an organisation other than your mortgage lender. Financial problems are likely to impact other areas, and you may miss other important payments, like your utility bills for example.

Delroy Corinaldi, spokesperson for the Consumer Credit Counselling Service, said: "The current economic climate is leaving many households financially vulnerable on multiple fronts.

"We urge lenders to show patience with those who face a sudden change in circumstances and encourage those who find themselves with a debt problem to immediately speak to their lenders and to seek free and impartial advice from a charity such as CCCS."

Tip 9 – Only agree a plan you can stick to
If you contact your lender because you are unable to meet your mortgage payments, they may suggest a temporary repayment plan. Be honest at the outset and if it's still too much, say so.

Don't agree to a plan that you are unlikely to be able to meet because a lender would much prefer to renegotiate a smaller monthly repayment that you will make each month, than run into further arrears problems down the line.

Tip 10 – Consider downsizing
If you have serious concerns about meeting your ongoing monthly repayments and you don't think this will change in the foreseeable future, consider selling your property.

If you still have equity in your home, and it is in a desirable location and condition, you may be able to sell up and pay off your mortgage as well as any arrears charges.

Many borrowers in arrears manage to work with their lender to get back on track, but many others don't, and the more serious your arrears become, the harder it is to pull yourself back into the black. The difficult decision of selling up could well be the smart one.

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